Posted 4/12/2019 10:11 (#7435126 - in reply to #7434920) Subject: RE: Bottom Line Losses of Some Companies in 1981
99MAX - 4/12/2019 08:11
FalcoFog - 4/11/2019 21:44 The Volcker actions at the FED were a very interesting experiment in economics. It has been my contention that the higher interest rates cause the inflation they are trying to prevent. When the FED put higher rates on in the 1979 to 1981 period to try and stop inflation this made the inflation worse and made it last longer up until the 81-82 recession that slowed the inflation and the economy, then the rates came down. I will post a chart that shows how higher prime rates lead the inflation up until the recession of 81. In the chart all 3 components are set to monthly frequency. You can see the oil embargo that started the whole thing in 1973. Oil has a big part to play in inflation. Prime rate is what it is in the chart as we know what it was on any given date. I have the CPI calculated as percent changed form a year prior, you can decide how fair that is in relation to the theory that, at least back in that period, higher rates caused the inflation they were trying to prevent. Here is an interview from the other day talking about the Volcker high interest era and how what most people believe about it is probably wrong. It is about how the FED isn't nearly as important as people think and congress and fiscal policy is where all the power over economic recessions and expansions is at: https://www.youtube.com/watch?v=ryR_lqH5WN8
How about the coming off the Gold Standard in1971, what they called the "Nixon Shock"?
Yes, switching from the inferior fixed gold exchange rate to the superior fiat floating exchange system no doubt had a part in some of the inflation during the transition period. If you look at the chart though inflation was under control and dropping up until the Yom Kippur War. Edit: You are right though, rates were rising several months before the oil embargo, but the embargo took things to a whole new level. It went from a regular cycle to screwing up the rest of the decade because of high oil prices.
It was the United States support of Israel during the Yom Kippur War that caused the Arab oil embargo which raised the price of oil dramatically, caused gas shortages, and gas lines, and resulted in the mid to late 70's inflation episodes. Oil price and inflation and the value of the dollar after Aug 15, 1971 cannot really be looked at separately as they each influence the others to different degrees at different times.
Today in the United States the price of oil is the single biggest contributor to the inflation rate.